At What Stages of Growth Will Inadequate Profits to
Grow Your Enterprise Become a Major Challenge
Increasing profits and reducing costs are the two critical business activities CEOs must focus on in order to created a sustainable business model
Simplistically, profit is defined as the act of bringing in more money than you spend. What’s left is considered profit.
It is imperative that organizations are disciplined in their approach to generating profits and that all employees have a basic understanding of how their job, the work they do every day, contributes to the company makes its money.
Making profits and having adequate cash flow is most critical in Stage 1: Start up with 1 to 10 employees. However, this is not one of the top five challenges when a company moves into stages 2 and 3 with 11 to 34 because the CEO’s attention must shift and invest in building a team of fully engaged top talent.
However, in stages 4 and 5 when the company is growing from 35 to 95 employees, having adequate profits to fuel growth becomes important again. Then, attention must again shift, to addressing the top challenges of weak project management and expanding sales.
Why the Challenge Must be Resolved:
Profits are necessary for a company to grow. It is critical that there is a specific and well thought out strategy for driving profits into a company.
Successful companies recognize the importance of creating a profit plan (budget): A 12-month view of the company’s core competencies from which they derive revenue, monthly projection of revenues, cost of good and expenses.
Seven Critical Questions CEOs Must Ask Themselves:
- Where does the company make the most money?
- What is our profit plan (budget), and why is it critical?
- What is the company’s profit design strategy?
- How competitive are our prices; what do our competitors charge?
- How do I know our pricing structure is effective?
- Do employees know how they impact company profitability?
- What line items on the company’s profit plan can they impact?
Make Sure You Have Done the Following:
- Created a profit plan (budget).
- Identified the company’s revenue groups (profit centers).
- Calculated the cost of good (aka: cost of sales) for each revenue group.
- And are tracking gross and net profits monthly.
By understanding cost of goods (cost of sales) and how profit is made on each product or service, a company can evaluate where to put its resources. Only then, can the most effective decisions on where to allocate limited resources be made.
By having all employees understand how their job impacts the company’s ability to make money, they become more engaged. Fully engaged employees can boost productivity, performance and profitability. A win-win situation for everyone.
Remember the Rules That Govern The Stages of Growth
The chart below illustrates the 7 Stages of Growth based on number of employees. James Fischer, author of the book Navigating the Growth Curve, defines the stages of growth and the challenges based on complexity brought about by the number of employees.
CEOs must be aware of the following rules:
1. The movement from one stage of growth to another begins as soon as you cross the threshold with additional employees.
2. What you don’t get done in a specific stage of growth does not go away.
3. Time will make a difference if you are growing slowly. Whereas, rapid growth can leave unaddressed challenges that still need to be addressed.
4. If you aren’t growing, you are dying. Even in a down economy when revenues tend to shrink, there are areas of improvement and growth a company can focus on.
Set aside 10-15 minutes and complete the online growth stage questionnaire. Then, you and I will have a debrief call to identify the top challenges you are facing in your current stage of growth, determine if there are any unfinished issues from a previous stage, and how to best prepare for your next stage of growth.